The Robins Kaplan Spotlight - VOL. 5, NO. 3 Fall 2020

THE SPOTLIGHTBROUGHT TO YOU BY ROBINS KAPLAN LLP’S WEALTH PLANNING, ADMINISTRATION, AND DISPUTES GROUPFALL 2020 | VOL. 5 NO.3WHEN IT’S A MATTER OF VALUEMATTHEW J. FRERICHSPartnerMinneapolis, MNMFrerichs@RobinsKaplan.com 612 349 8500STEVEN K. ORLOFFPartner; Co-Chair, Wealth Planning, Administration, and DisputesMinneapolis, MNSOrloff@RobinsKaplan.com 612 349 8500STEVE A. BRANDPartnerMinneapolis, MNSBrand@RobinsKaplan.com 612 349 8731DENISE S. RAHNEPartner; Co-Chair, Wealth Planning, Administration, and DisputesMinneapolis, MNDRahne@RobinsKaplan.com 612 349 8500ANTHONY A. FROIOManaging Partner, Boston, MAMember of the Executive Board AFroio@RobinsKaplan.com 617 267 2300LAWRENCE A. FARESEPartnerNaples, FLLFarese@RobinsKaplan.com239 430 7070BRENDAN V. JOHNSONPartnerSioux Falls, SDBJohnson@RobinsKaplan.com605 335 13002WELCOME TO THE SPOTLIGHTBROUGHT TO YOU BY ROBINS KAPLAN LLP’S WEALTH PLANNING, ADMINISTRATION, AND DISPUTES GROUPThe Spotlight is the result of ongoing collaboration between our national trial practice and estate planning groups, with the goal of providing a forum to discuss the latest news and other issues impacting the trusts and estates community. Whether you are a trustee, beneficiary, trust officer, attorney, financial advisor, or other professional in this area, we hope that you will find this newsletter interesting, informative, and perhaps at times even a bit entertaining.As leaders and teachers in the field of wealth planning and administration, our attorneys have built a reputation for excellence in meeting the needs of individuals and organizations from basic to complex testamentary planning. We counsel individuals and business owners in all aspects of estate planning and business succession, providing them with peace of mind and reassurance that their legacy is in the best of hands. Furthermore, should a conflict arise, our wealth disputes attorneys are well positioned to resolve the matter with thoughtfulness, creativity, and compassion. Our national reputation for litigation excellence includes wins in the fiduciary arena for trustees and fiduciaries, personal representatives, beneficiaries, guardians, and conservators. Whether litigating fiduciary matters, inheritance issues, or contested charitable donations, we help clients cut through confusion to find a path to resolution.Is there a topic affecting your practice that you would like us to discuss in an upcoming issue of the Spotlight? Let us know at TPentelovitch@RobinsKaplan.com.If your colleagues or clients would like to receive this quarterly publication, they can subscribe on our website: http://www.robinskaplan.com/resources/newsletters – Denise S. Rahne and Steven K. OrloffTo learn more about our wealth planning, administration, and disputes attorneys and the services we provide, contact one of our experienced partners:3INSIDE THIS ISSUEVALUATION: THE “EYE OF THE BEHOLDER” CAUSES DISPUTESTHE IRS SAYS “NICE TRY.” CASE ILLUSTRATIONS OF UNSUCCESSFUL VALUATION EFFORTSFROM THE TRENCHES: A SPOTLIGHT INTERVIEW WITH LARRY FARESE356VALUATION: THE “EYE OF THE BEHOLDER” CAUSES DISPUTES BY ANNE M. LOCKNER AND RICHARD R. ZABELThe need to value closely held corporations and associated real estate frequently arises in the context of estate administration. The value of such assets, however, is often fogged by the differing perceptions of the various estate stakeholders. Further, valuation of closely held family businesses often entwines valuation techniques with family dynamics and statutory dictates that complicate determination of the “value” of stakeholders’ interests. In addition, the real estate of a closely held business may be held in other legal entities likely established for various tax, liability, and cash-flow purposes. Disputes in valuation of these assets often occur due to differing perceptions about how to value the business and the “eye of the beholder” of different stakeholders. VALUATIONValuations of closely held business utilize three general approaches – cost/asset approach, market approach, and income approach – each with its own strengths and weaknesses. The three approaches may produce significantly different values that can be difficult to reconcile. Finally, all valuations have an element of opinion. Disputes arise when the valuation results are not reconciled or contrasting opinions produce disparate results based on the perceptions of the various stakeholders. COST/ASSET APPROACHThe cost/asset approach values the business based on the cost to build or the expected replacement cost of the business assets. All assets – receivables, inventory, machinery, buildings, and land (if owned by the legal business entity) – are adjusted to their fair market value and the total value of the assets is the “value” of the business. The main problem with the cost/asset approach is...